Four Forces Are Creating Market Volatility... But There Is Hidden Strength
Under the surface, there are many stocks with good fundamentals and solid charts. Here's my game plan.
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After an eventful day, the market indexes are indicated higher on Thursday morning. The Fed maintained interest rates at current levels and indicated that it would wait and see how things develop. Inflation is stuck above the 2% level, unemployment is low, and economic growth is running at 2.5% to 3%. The economy is weak enough to prevent inflation from increasing but strong enough to deliver growth.
The biggest market risk going forward is an uptick in inflation, but the Fed is confident that it is under control and moving in the right direction. While the market still anticipates one or two rate cuts in 2025, if that shifts, it will be a major problem for equities. Bonds have ticked up, and yields are down, indicating optimism about inflation.
Earnings reports Thursday night from Microsoft MSFT, Meta META, and Tesla TSLA were mixed, with Microsoft disappointing but Meta and Tesla trading higher. Both Meta and Microsoft indicated that they will continue spending on AI at high levels, which has helped to ease some of the fears that have developed over DeepSeek.
The DeepSeek drama this past week has sent the message that there will be intense AI competition. The Magnificent Seven names have grown a bit complacent about their control of AI and are now stepping up to deal with the challenge.
Apple AAPL reports earnings results on Thursday night, and it will be particularly interesting to see its capital expenditure plans for AI. Apple has lagged in AI development, but with the cost of some AI now falling, that may be a positive for it.
While there are some big macro headlines about the Fed, inflation, earnings, and AI, there is also some good stock picking taking place. There are pockets of strength in various areas and some good earnings reports outside the Magnificent Seven. The pundits are intensely focused on the indexes, and most overlook relatively good action in both the Russell 2000 IWM and DJIA.
My game plan is to stay focused on action in individual stocks and not worry too much about timing the indexes.
At the time of publication, Rev Shark had no positions in any securities mentioned.
